Global defence companies’ revenue is forecast to rise by 3.2 per cent this year as US expenditure picks up and conflicts from the Middle East to South China Sea fuel demand, according to Deloitte.
US defence spending is set to rise since the president-elect, Donald Trump, has expressed a desire to expand the country’s naval fleet and boost the army’s numbers.
Its defence budget, which has been on a five-year decline, is forecast to increase by US$20 billion in financial year 2016, to $580bn, and by a further $9bn in financial year 2017, Deloitte said in a report released yesterday.
The US financial year starts in October and ends in September.
The report comes ahead of next month's International Defence Exhibition (Idex) being held in Abu Dhabi, a barometer of regional spending.
“In 2017, growth is also expected to be driven by the newly elected US administration’s increased focus on strengthening the nation’s military,” Deloitte said.
The US is the largest defence spender by value, accounting for 40 per cent of the global total of $1.568 trillion, according to IHS Jane’s Defence Budgets report released last month, which put the US budget at $622bn.
“With rising global tensions, international demand for defence and military products is increasing in the Middle East, eastern Europe, North Korea, and the East and South China Seas,” Deloitte said. “This is in turn resulting in increased defence spending globally, especially, in the UAE, Saudi Arabia, India, South Korea, Japan, India, and China – many of these countries have already started to increase purchases of next generation military equipment.”
The Middle East was the fastest growing region in terms of spending between 2012 and 2014, but the oil price crash dented its expenditure, said the Jane’s report. Despite this, 2015 and 2016 are forecast to be higher than the 2013 figures, Jane’s said.
Saudi Arabia, for example, had the fifth biggest defence budget globally last year, according to Jane’s, and retained its ranking despite slightly lower spending than in 2015.
But Gulf countries need to shift strategies and create local defence industries, said the consultancy Oliver Wyman in a report released yesterday.
“Until now, almost all of the billions of dollars spent on arms have gone to foreign suppliers,” said Anshu Vats, a partner at Oliver Wyman and one of the report’s authors. “In the future, the GCC must focus on developing a domestic base of defence manufacturing.”
The UAE has started to establish a domestic defence industry. Abu Dhabi combined assets of several defence firms in 2014 to set up Emirates Defence Industries Company, which is winning contracts from the UAE military.
Local companies won a big chunk of contracts up for grabs at Idex in 2015 as the UAE beefed up its support of the industry to help diversify the economy away from its dependence on oil, and to create high-tech jobs.
dalsaadi@thenational.ae
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